What is an Escrow?
An escrow is a neutral third party who assists with secure payment in a transaction. Escrows are typically used in sales agreements where the buyer and the seller are doing business for the first time. In such agreements, the buyer and the seller agree to entrust the escrow with the sale amount until the transaction is completed.
How Does an Escrow Work?
The process generally follows these basic steps:
- The buyer and the seller agree to use an escrow for the transaction.
- The buyer, seller and escrow sign an escrow agreement.
- The buyer transfers the sale amount to the escrow agent.
- The seller delivers the goods to the buyer.
- The escrow agent releases the sale amount to the seller.
Who can be an Escrow in Turkey?
Depending on the type of agreement, different professionals and entities are used as Turkish escrow agents for specific transactions:
- In cross-border transactions, lawyers are commonly preferred as escrows.
- In government auctions, government-appointed individuals or entities typically act as escrow agents. These are called Turkish trustees.
- In real estate and vehicle sales, banks are often used as escrows agents.
How Much Do Escrows Charge?
Escrow fees typically range between %1-3 of the transaction amount in total. This cost is usually shared between the parties involved in the transaction. The exact fee depends on several factors, including:
- The transaction amount
- The complexity of the transaction and the amount of paperwork involved
- Banking regulations in respective countries
What is the Penalty When an Escrow Violates the Agreement?
Escrows in Turkey are subject to both civil and criminal laws. In the unlikely event that a Turkish escrow violates the escrow agreement or embezzles the entrusted funds, they would face both civil and criminal liability.
Under civil law, the escrow would be legally responsible for any damages caused to both parties as a result of their actions that violated the escrow agreement.
Under criminal law, the escrow could be charged with crimes such as Breach of Trust or Abuse of Duty, both of which are punishable by imprisonment.
When Should You Hire an Escrow?
- Does the opposite party insist that you fulfill your contractual obligation (whether to sell or pay) before they fulfill theirs?
- Is this your first time conducting business with the opposite party?
- Is the transaction amount too high to risk?
- Is it a cross-border transaction?
- Does the transaction involve complex paperwork that requires due diligence, such as a bill of lading, quality test reports, or a charterparty?
If the answer to any of these questions is “yes,” using an escrow is highly recommended to ensure the security of the transaction.
How Can I Find an Escrow?
Turkish Lawyer Baris Erkan Celebi offers escrow services for high-volume cross-border transactions. These services include thoroughly reviewing the commercial contract upon which the escrow agreement is based, assisting with negotiations between the parties, drafting the escrow agreement in compliance with respective laws, and ultimately performing the escrow services in accordance with the terms of the escrow agreement.
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